4 Reasons to Stick With Ancestry.com

The online genealogy website is built to last.

One of the biggest concerns I've heard about Ancestry.com(Nasdaq: ACOM) is that it's just a fad, or a toy for hobbyists. Most people don't realize the Provo, Utah-based company has been around since 1983. For almost 30 years the company has grown and adapted from its publishing company origins into the genealogical research giant it is today. Longevity might not win over investors on its own, so I'm laying down four other reasons that Ancestry is a great stock.

International growthAncestry operates websites in eight countries outside of the United States: the United Kingdom, Canada, Australia, Germany, Italy, France, Sweden, and Japan. Researchers are constantly adding documents to Ancestry's databases, improving the company's network effect in the process.

The more documents available to consumers, the more valuable a tool it becomes, especially in this day and age when families are spread across the globe. Here's an example of the lengths Ancestry researchers go to: It recently expanded its collection to include records from German church books that are 300 years old.

All told, Ancestry's database holds more than 7 billion records.

Technology and mediaWithout a doubt, technology is crucial to Ancestry's business. Beyond the infrastructure that maintains its databases, the company proves to be adept at utilizing innovation and marketing to reach consumers. The company also co-sponsors a successful show on NBC, Who Do You Think You Are, which analyzes the family history of celebrities. The show is returning for its third season this fall.

More than 1 million people have downloaded Ancestry's mobile app and Ancestry's website has an online community built right into it. The business of drawing connections between family members, past and present, fits hand in hand with the pervasiveness of social media in our society.

Modern family structureTheNew York Times published an article last month about the changing make-up of families, and the effect it has on family trees. Some families go as far as to outline "emotional" and "genetic" family trees, or family forests, as many families are too complicated to explain with just one tree.

As the article points out, tracing a family tree is not necessarily confined to hobbyists; legitimate health and legal implications drive much of the research. Regardless of a consumer's motivation, the demand for evidence and answers is a boon for Ancestry.

CompetitionThere may be a handful of much smaller rivals floating around out there, but none of them are up to the task of taking down Ancestry. No one else has billions of documents online or co-sponsors a television show on a major network. This cheese stands alone.

The lack of competition allows Ancestry to spend quite a bit of revenue on marketing and advertising to build out awareness. This is common among other pure-play online or Internet businesses.

Company

Marketing/Advertising Costs

2010 Revenue

M/A as % of 2010 Revenue

Ancestry

$94.6

$300.9

31.4

salesforce.com(NYSE: CRM)

$605.0

$1,305.6

46.3

Qlik Technologies(Nasdaq: QLIK)

$122.4

$226.5

54.0

NetSuite(NYSE: N)

$92.8

$193.1

48.1

OpenTable(Nasdaq: OPEN)

$21.7

$99.0

21.9

Source: annual reports.

Qlik Technologies takes this idea to the next level, but you can see that all of these companies are thinking along the same lines. The best-case scenario for the companies above is that in a few years they are synonymous with the product they're selling in the eyes of consumers and other companies.

Going forward, Ancestry will be able to cut back on marketing and advertising costs, resulting in tremendous margin growth. The windfall will head straight for the bottom line, or because this is a "best-case" scenario, straight for investors' pockets.

Foolish takeawayFamily has always been complicated; Ancestry's recipe for success is not. The company is on top right now, and it will stay there provided it continues to expand into foreign markets, embrace media and technology, and position itself as the go-to source for all things genealogy-related.